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On 27 May 2014, the Competition Commission of India (CCI) imposed a penalty of INR 3 crore (approximately USD 0.5 million) on Tesco Overseas Investments Limited (Tesco) for apparently filing a merger notification 73 days late. This is the highest penalty that the CCI has levied so far for a delay in filing.

Tesco proposed to acquire 50% equity share capital in Trent Hypermarket Limited (Trent) and signed the definitive agreements for acquisition on 21 March 2014. Tesco had also previously filed an application in December 2013 with the Department of Industrial Policy and Promotion, Ministry of Commerce & Industry (DIPP) and the Foreign Investment Promotion Board (FIPB) for the acquisition of 50% of the equity share capital of Trent.

The CCI cleared the transaction, but, in a subsequent decision said that the filing was late. In this regard, the CCI stated that the Competition Act, 2002 (as amended) (Act) and its merger control regulations required notification to the CCI within 30 days from the date of the DIPP and FIPB applications (i.e., December 2013), and not the date of the definitive agreement (i.e., March 2014).

The Act provides the basic requirement as to when to file a notification for a qualifying transaction. Section 6(2)(b) of the Act provides that the merger notification for an acquisition must be made with the CCI within 30 days of “execution of any agreement or other document for acquisition.”

However, the CCI transposed this section into its merger control regulations in an ambiguous way that appears to have given rise to the reasoning in the Tesco case. Regulation 5(8) of the Combination Regulations explains that the reference to the “other document” in Section 6(2)(b) of the Act means any binding document, by whatever name called, conveying an agreement or decision to acquire control, shares, voting rights or assets. The problem arises with the meaning of the phrase “other document” (which was likely in reference to hostile takeovers where there is no possibility of an agreement). Specifically, the second proviso to Regulation 5(8) provides that “where such a document has not been executed but the intention to acquire is communicated to the Central Government or State Government or a Statutory Authority, the date of such communication shall be deemed to be the date of execution of the other document for acquisition.

Analysis

This case may lead to confusion as to when to make a merger control filing in India. Until this order, the clear understanding was that, for an acquisition, it was the “date of the binding agreement to acquire” that triggered the notification and the parties would then have 30 calendar days to file the CCI notification. This case “shifts the goal posts” by effectively saying that Tesco’s filing for governmental approvals evidencing an intent to acquire but prior to entering into a definitive acquisition agreement was the requisite trigger event.

To highlight the problem, this decision could result in an inadvertent trigger of the 30 day CCI filing period. For example, if a company considering a notifiable joint venture files incorporation documents or reserves a name with the registrar of companies, this might be enough to trigger the notification requirement with the CCI based on the CCI’s reasoning in the Tesco matter. That is generally not going to be a desirable result.

Is the CCI on a strong footing in this case? The international best practices standards on merger notifications would say no. For example, these best practices clearly state that the triggering event for purposes of calculating the filing deadline should be clearly defined to permit the parties to determine the timing of their notification obligation in a definitive manner. Certainty about the trigger event is even more important for competition law jurisdictions like India which has a deadline for filing a merger notification (the 30-day deadline from the execution of any agreement or other document for acquisition). By contrast, the European Union has no deadline for filing a merger notification; rather, the only obligation is to receive European Commission clearance prior to completion.

Given that any acquisition that satisfies the high Indian merger control thresholds will very likely require liaising and communicating with several other government entities, these communications could now be regarded as the trigger event even if there is no binding agreement to acquire. This newest quirk for identifying the trigger may have profound effects that should be carefully considered for parties considering transactions that may invoke Indian merger control jurisdiction. For example, parties considering transactions where Indian merger control may be an issue should be mindful of the CCI’s thoughts in terms of making other government filings in India.

Appeals are possible in the Tesco case. Given the amount of interest this decision has had domestically and internationally, it is likely that this will be a controversial issue for the foreseeable future.

(Manas Chaudhuri & Arshad Khan work with Khaitan & Co., a full service law firm.)